Prytania Investment Advisors, a London-based asset manager, is readying its first investment fund--a euro-denominated fund that will invest in mezzanine tranches of asset-backed securities and collateralized debt obligations with a target size of €300 million. Marketing for the fund will begin in the coming weeks, focusing on European investors, with a soft close scheduled for early July, according to an investment manager familiar with Prytania's plans. A second fund, focusing on equity tranches of ABS and CDOs, is on the drawing board for the second half of the year. Charles Pardue, managing partner at Prytania, did not return calls by press time.
The bulk of the mezzanine fund will be invested in single-As and triple-Bs, with a limited bucket for double-Bs. Bonds backed by the gamut of collateral, including residential mortgages, commercial mortgages, auto loans, credit card loans and equipment leases, are all fair game and the fund can invest in European, U.S. and Asian deals. "Even though mezz is one of the most popular and heavily bid areas of the market, you can still get good risk-adjusted returns," observed one investor. He noted the triple-Bs in a recent U.S. collateralized loan obligation offered a spread pickup of 150 basis points over the triple-As, even though the deal was structured to sustain a high degree of stress. In emerging market deals, this spread pickup can be closer to 250bps.
Prytania is creating a fund rather than a collateralized debt obligation to keep investment banking fees to a minimum and avoid certain restrictions rating agencies impose on CDO managers that limit their investment options. It has close to €300 million in committed bank debt lined up from Deutsche Bank, which it can draw down and repay as required, and aims to raise about €40 million from investors--targeting a leverage level of eight or nine times in the fund.
Prytania was set up by Pardue in 2002 and manages structured finance investments on behalf of global clients. Pardue has spent the last few years building a team and developing analytic and risk management systems, and documentation is almost ready for a master fund under which subsidiary funds--of which the mezzanine fund is the first--can be created. Pardue spent 11 years at J.P. Morgan, lastly as co-head of structured finance distribution in Europe.
